India's retail inflation has plummeted to 1.55% in July 2025, marking an eight-year low and falling below 2% for the first time since June 2017. This substantial decline from 2.1% in June 2025 is primarily attributed to cooling food prices, which have driven the overall inflation rate down. The last time retail inflation was this low was in June 2017.

The Consumer Food Price Index (CFPI) has further dipped into negative territory, registering -1.76% in July. This deflation in food prices is the second consecutive month of negative food inflation, with an even deeper deflation compared to June's -1.1%. Several food categories have experienced price declines, including pulses, vegetables, cereals, eggs, and sugar. Notably, vegetable prices have seen a significant drop.

Key Factors Contributing to the Decline

• Cooling Food Prices: A strong spring harvest, despite uneven monsoons, has helped keep food prices in check, contributing to the extended disinflationary trend.
• Base Effect: A favorable base effect has also played a role in the decline in inflation.
• Decline in Specific Food Categories: Significant price drops in vegetables, pulses, and other food items have contributed to the negative food inflation.

Impact on the Economy

The sharp moderation in both headline and food inflation is expected to provide relief to consumers and policymakers. The Reserve Bank of India (RBI) has already revised its full-year inflation forecast from 3.7% to 3.1%. The RBI expects an average inflation rate of 2.1% in the second quarter, rising to 3.1% in the third quarter and peaking at 4.4% by the end of the fourth quarter.

The RBI's Monetary Policy Committee (MPC) has kept the policy repo rate unchanged at 5.5% and retained a 'Neutral' stance, after three consecutive rate cuts since February totaling 100 basis points. The MPC noted that risks to the inflation outlook are "evenly balanced".

Expert Opinions and Forecasts

Analysts anticipate that as base effects fade in the coming months, headline inflation is expected to rise above 4% by early 2026. Core inflation, which excludes volatile components like food and fuel, is expected to remain above 4%, driven by precious metals.

Sakshi Gupta, Principal Economist at HDFC Bank, noted that the moderation in food inflation is due to healthy supplies from the previous year.

State-wise Inflation

In July 2025, Kerala recorded the highest inflation rate at 8.89%, while other states experienced varying levels of inflation. Rural inflation fell to 1.18%, and urban inflation dropped to 2.05%.

Wholesale Price Index (WPI)

Wholesale inflation in India is also showing a deflationary trend. The Wholesale Price Index (WPI) is estimated to have fallen to -0.45% year-on-year in July, down from -0.13% in June. This is the lowest level since August 2023. The decline in WPI reflects the trend in retail inflation (CPI), with both food and fuel subsegments slipping deeper into deflation territory.